Tuesday, June 17, 2014

Incumbent Carrier Dystopia

Here in West Valley City, we are actively looking for alternatives to Comcast and Centurylink. Lucky for them, there are no credible alternatives yet, but they are fighting hard to keep it that way. How do they do it?

They create franchise contracts that have non-compete clauses. In other words, the city on the other end of the franchise is not allowed to develop their own resources for providing internet access that would directly compete with incumbent providers such as Comcast and Centurylink. Even if the incumbent providers are not willing to keep up with the rest of the world in speed or quality of service, the city has no exit clause.

Now these franchise agreements may not exclude new entrants to the market, but when a new entrant arrives, incumbent providers have the advantage given that they have already pulled cable to each house. The infrastructure is already there. So while the new entrant is building out, incumbents can file lawsuits, astroturf the media to act like the new entrants simply can't do the job, or undercut the new entrant to the point of bankruptcy.

Incumbent carriers and service providers will also get their top dogs into various advocacy groups. For example, in the Wassatch Front, we have Utopia, the underdog consortium of cities that were so fed up with incumbents, they sought to build their own utility for internet access. This new utility would provide world-class speeds, something that the incumbent carriers have steadfastly refused to do, while charging ridiculous rates.

After the incumbents beat up Utopia to the point where it was saddled with debt, unable to grow, a new hope arrives in the form of Macquarie Capital. I've been to the meetings to learn more about this company, and the proposal they are offering to the 11 Utopia cities, including West Valley City. Macquarie has offered a win-win proposal that will put gigabit fiber access to the internet in every home and business in the city.

The cities will make enough money to pay off their old debts, the residents get gigabit fiber access if they pay for premium access for around $70 a month, or they can law low and take 3mbs in exchange for a utility fee of $18-20 a month, half what Centurylink would charge for the same service.

To fight off this proposal, Centurylink has found a proxy in the Utah Taxpayers Association and have installed their VP to mouth off about how bad they think the Macquarie deal is. This is astroturfing at its finest. Of course, the Utah Taxpayers Association doesn't advertise their affiliation with Centurylink, but anyone looking at the "unopia.org" website needs to know that industry connections are there, fighting to keep their monopolies going.

I live in West Valley City and want to see Utopia succeed. I want to get away from subscription rates that rise faster than inflation with Comcast and sub-par service from Centurylink. The incumbent carriers would gladly tell us that as a private enterprise, they will provide better service than a government run internet service will. But they don't tell us that numerous private internet service providers will operate that fiber network and provide great customer service on top of that, with real competition.

Comcast and Centurylink are not in competition with each other, but they sure act like it. I've seen Centurylink cede territory in my neighborhood to Comcast, denying me a reasonable alternative to Comcast. Why? Maybe someone lost a bet in a golf game. I don't really know. But I have only one meaningful internet service provider here. That is not a free market.
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